MakerDAO: $1.25 billion of US Treasuries in DAI reserves

The leap, the bully and the ugly – The stablecoin market looked like the Wild West last week, on the sidelines of an incipient bank collapse. silver gate, Signature Bank and especially Silicon Valley Bank (SVB). A banking earthquake which shook the USDC and DAI stablecoins. Suddenly, Maker DAO, the company behind the DAI, reacts. Explanations.


DAI Depeg: MakerDAO takes action

There MakerDAO governance has just voted in favor of an increase in the share of US Treasury Bonds in its reserves, on March 15th. It is the principle of a DAO (Decentralized Autonomous Organization), for each decision, the community votes. A habit that is being lost these days within our own governments.

“Maker’s governance has approved an increase from $500 million to $1.25 billion in US Treasuries in its treasury.

In this process, MakerDAO will use 750 million USDC present in the Peg Stability Module (PSM) [la réserve chargé de maintenir l’indexation du DAI au dollar 1 : 1] in order to acquire more US Treasury bonds, and thus further diversify the DAI’s reserves. »

Maker DAO reacts following the DAI depg last weekend.  A vote is underway to convert part of the reserves in USDC into US treasury bonds.
MakerDAO makes decision to convert part of its USDC into US Treasuries to diversify reserves backing DAI

THE DAI is a stablecoin powered by MakerDAO company and backed by reserves of various kinds. It suffered a temporary decorrelation of its price with the dollar in line with that of the USDC. But why?

Circle’s USDC stablecoin made headlines last weekend decorrelating from the dollar. Indeed, we learned that part of the USDC reserves were held in the Silicon Valley Bank bankrupt. Investors, on edge since the fall of FTX and the now more distant Terra Luna, became afraid of not being able to recover their funds. They therefore sold their USDC en masse, causing the price to depeg against the dollar. And this, up to a value of $0.87 per USDCa ratio supposed to guarantee 1:1.

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From USDC to DAI, a chain reaction among stablecoins

However, this fall also led to that of the DAI up to 0.89 dollar last weekend. DAI is an algorithmic stablecoin that works through over-collateralization composed of various assets:ETH (10%) for example, but especially from the USDC to 58%.

The DAI stablecoin is mostly backed by USDC, an overreliance that MakerDAO wants to alleviate.
Status of DAI stablecoin reserves – Source:

In fact, with such concentration, if the USDC has a problem, the DAI has a problem. This risk explain MakerDAO’s recent move to replace some of its USDC with US Treasuries. So as to be less impacted if such a situation were to recur. Diversification remains the key to longevity, as they say.

MakerDAO had started investing in US Treasuries in October 2022 up to 500 million. With this vote, this share in US Treasuries will more than double reaching $1.25 billion of the $7.5 billion than the DAI’s total reserves. The proposal was accepted by the community at 77% for (23% against).

Maker’s governance still has to approve the change on a final basis in a second vote. However, the proposal seems well on its way to being implemented. In a world increasingly correlated between traditional and decentralized finance, caution is required for all protocols trying to survive by avoiding the shots. Beware all the same not to take yourself too a stray ball from the regulation sheriff.

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